Examining The Growth of Mobile Payments

Mobile phones have come a long way since they were attached to batteries the size of a suitcase. They have become music players, portable games devices, cameras and so much more than just a tool for making or receiving phone-calls. It seems to be natural progression that the mobile phone gains another useful function to continue its role as the Swiss knife of the gadget world.

The latest big addition for mobile phones is mobile payments, making and receiving payments without using a credit/debit card, hard currency or any other physical payment method. The phone can be a portable bank counter, using a variety of operations to assist a client in making a payment on the move. The technology for mobile payments isn't new - Nokia were promoting NFC technology in 2004. But it is only in the last couple of years, coinciding with the incredible growth in smartphone purchases and app downloads, that mobile payments have become seen as a more viable and profitable development.

The main technologies currently used for mobile payments are:

SMS (text message) - The consumer sends a text to a premium short code and is billed a certain amount depending on the purchase. Commonly used for digital goods such as ringtones and mobile themes.

NFC (Near Field Communication) - It sounds more complicated than it actually is. Smartphones that are equipped with an NFC chip can be tapped on or waved in front of a reader and a transaction is made. The device range is limited to a few centimetres, thus preventing unwanted purchases, and can be combined with entering a PIN.

WAP - The mobile equivalent of surfing the internet. People can pay for their goods whilst on the go using WAP, with payments being made through a supplier's mobile site using methods such as credit card payments or PayPal.

Direct Mobile Billing - A customer buys something and the credit is taken or billed to their mobile service provider or from pre-paid top-ups. This method is already popular in Asia.

According to a recent detailed research report, NFC is the most likely payment contender for the future. The report stated that NFC accounted for just 14.9 percent of mobile payments in 2009 but is expected to rise to 32.8 percent in 2014. This will be at the expense of SMS mobile payments, measured at 76.4 percent of transactions in 2009 but expected to drop to 58.7 percent by 2014.

So which companies are heralding this charge into mobile payments? Google have an app called Google Wallet which stores credit card or store card information and can be used in conjunction with MasterCard PayPass, incorporating NFC technology. At present there are a select number of phone models that can use this service. Only 861 million transactions were made using NFC in 2009 worldwide, but this has been forecast to rise to an incredible 35.6 billion transactions by 2014, as more people buy NFC capable phones and embrace this payment technology.

Not willing to miss out on the mobile payment action, a startup company called Square has developed a small square-shaped card reader which can be attached to a mobile phone turning it into a mobile credit card/debit card payment device. This would allow mobile workers or people just selling products on the go to accept payments via their mobile phone.

Visa, American Express, ISIS (AT&T, Verizon, T-Mobile), PayPal and of course the major banks are all rolling out their own mobile payment plans. With the potential for global mobile payments to be worth over $1 trillion by 2014 (compared to $37.4 billion in 2009) this is something that the major technology, communication & banking companies cannot afford to ignore.

The future of mobile payments looks likely to involve incredible growth as more consumers are willing to accept this form of transaction. The older generation will probably still prefer carrying cash or cards, but younger shoppers who are already used to the rapid changing nature of technology should embrace mobile payments, especially NFC, to pay for things such as tickets, mobile services and digital goods. This is going to be a global phenomenon as all market regions of the world are expected to see a huge rise in the use of mobile payments within the next 3 years.

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Contributors

Nouriel Roubini, a.k.a. “Doctor Doom”, is chairman of Roubini Global Economics and professor of economics at New York University’s Stern School of Business. Roubini has been consistently cited as one of the world’s top global thinkers. This year, he was voted as the most influential economist in the world by Forbes magazine.

Dr Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among all major advanced economies and large emerging economies. In addition to advisory activities (www.differencegroup.net), he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, please see http://www.differencegroup.net/. Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).

QFINANCE is a unique collaboration of more than 300 of the world’s leading practitioners and visionaries in finance and financial management, covering key aspects of finance including risk and cash-flow management, operations, macro issues, regulation, auditing, and raising capital.